The Value Equation
Good morning,
You’re presumably reading The Action Item because you’re at least curious about becoming a more compelling and productive individual who creates valuable outcomes. If I were to make you an offer that guarantees you’d be the most compelling & productive person on your team without needing to work hard or needing to wait a prolonged period of time, would you find this valuable? You’d probably respond with “Sounds great. This is clearly a scam. Unsubscribe.” But hear me out, there’s value to the logic of this absurd offer. Let’s dive in.
I talk a lot about “delivering value” with my team, with customers, and within this newsletter. Today we’re breaking down what “value” really means.
There are multiple ways to define “value”– and multiple components of what brings value— especially in a business context. Oxford dictionary defines value (the noun) as the importance, worth, or usefulness of something. But we need something a bit more practical here. Alex Hormozi’s 100M Offers puts forth the concept of the value equation that contains the following variables:
Dream Outcome: What’s the best-case scenario? Is this something your stakeholder actually wants?
Perceived Likelihood of Achievement: What’s your stakeholder’s belief that they’ll actually get what they want?
Time Delay: How long will it take to get what they want after they pay?
Effort and Sacrifice: What work does the client need to put in to get what they want? What do they need to stop doing to get what they want?
One small critique I have of the equation: it’s a mistake to assume all clients have a dream outcome that stands strong after a bit of scrutiny. Clients’ “dream outcomes” may be poorly thought out, may be grounded outside of reality, may not be ambitious enough, or may not actually be the right dream outcome for them. Make sure your client’s dream outcome has been pressure tested.
OK, let’s put the equation to the test with a hypothetical example of a customer who wants to drive a 25% increase in sales volume year-over-year. This customer can choose to pay a $10,000 per month retainer to a reputable marketing agency to achieve this goal. But why would they do this when they could simply go on YouTube and watch the countless guides on driving more sales via strategic marketing tactics? While the dream outcome (“help you drive more sales”) is the same for both the high-end marketing agency and free YouTube marketers, you have to look at the remaining three components of the value equation.
The above established marketing firm offers:
A winning track record, suggesting that they’ll continue to be successful.
Experience, proving they’ll get more done in less time.
A guarantee to handle all logistics and strategy.
If this hypothetical client decided to go the “learn marketing tactics on YouTube” route, there’s no guarantee of results within a certain time frame. And since they’re owning all the skill building + logistical tasks themselves, it takes a lot longer to even have a chance of traction. This is the value delta between the high-end agency and unverified YouTube marketers.
It’s easy to make big promises. The “all talk” salesman only focuses on the numerator of the value equation. They quickly out themselves as someone who over-promises and under-delivers because they didn’t reduce the value equation’s denominator. The best practitioners reduce the time and effort customers spend on certain tasks— even if they’re referring their client to someone who knows more than them. It’s much more difficult to offer a product/service that actually reduces the time and effort to accomplish a dream outcome. The best overall salespeople address all four value equation factors.
Take the time to ensure you’re addressing all parts of the value equation in your next pitch / stakeholder meeting.
72% of customers said they prefer a “sales rep-free experience,” or completing their purchase without speaking to a rep at any point (source). This is due to a perceived (or genuine?) lack of value sellers tend to provide in achieving customer objectives. Congrats on being the seller working with the 28%.